UK Chancellor George Osborne revealed a raft of measures aimed at boosting oil and gas production as part of his 2015 Budget speech Wednesday.
Osborne – who ahead of the Budget had been urged by the UK oil and gas industry to simplify North Sea oil and gas taxation – said he was responding to the low oil price by introducing a new tax allowance to stimulate investment across the industry and that the government – via the newly-formed Oil and Gas Authority – would invest GBP 20 million ($30 million) to carry out new seismic surveys in little-explored areas of the UK Continental Shelf. The UK government is also cutting both the Petroleum Revenue Tax and the Supplementary Charge – which is paid on ring-fenced oil and gas profits. .
“While the falling oil price… is good news for families across the country, it brings with it challenges for hundreds of thousands whose jobs depend on the North Sea. Thanks to the field allowances we’ve introduced we saw a record GBP 15 billion invested last year in the North Sea but it’s clear to me that the fall in the oil price poses a pressing danger to the future of our North Sea industry unless we take bold and immediate action. And I take that action today,” Osborne told MPs at the House of Commons.
“First, I’m introducing from the start of next month a single, simple and generous tax allowance to stimulate investment at all stages of the industry. Second, the government will invest in new seismic surveys in underexplored areas of the UK Continental Shelf. Third, from next year, the Petroleum Revenue Tax will be cut from 50 percent to 35 percent to support continued production in older fields. Fourth, I am – with immediate effect – cutting the Supplementary Charge from 30 percent to 20 percent and backdating it to the beginning of January. It amounts to GBP 1.3 billion of support for that vital industry in the North Sea.”
Osborne also used the speech as an opportunity to take a swipe of Scottish Nationalists who argued during last year’s Scottish independence campaign that Scotland’s oil and gas industry would be safe if the country had voted ‘yes’ to independence.
“The OBR [Office of Budget Responsibility] assess that [the new tax measures] will boost expected North Sea oil production by 15 percent by the end of the decade and… it goes without saying that an independent Scotland would never have been able to afford such a package of support, but it is one of the great strengths of our 300-year old Union that just as we pool our resources so we share our challenges and find solutions together for we are one United Kingdom.”
Trade body Oil & Gas UK welcomed the measures, describing them as a “decisive move to restructure the North Sea tax regime to promote investment in the nation’s vital and considerable remaining oil and gas resource”.
Oil & Gas UK Chief Executive Malcolm Webb commented in a statement:
“Today’s announcement lays the foundations for the regeneration of the UK North Sea. The industry itself must now build on this by delivering the cost and efficiency improvements required to secure its competitiveness.”
Dan Macdonald, founder of Scottish business group N-56, noted that the overhaul of the tax regime “is a much-needed contribution” to boosting the oil and gas sector, but that it is “a great shame” that the tax increases previously introduced by the Chancellor had exacerbated the issue of global low oil prices and led to the loss of thousands of jobs.
“It is also disappointing that the Chancellor did not heed our call for government policy and decision makers responsible for oil and gas taxation and regulation to be relocated from London to Aberdeen, moving them closer to the industry itself and echoing the situation in Norway; or for the delivery of a Hydrocarbon Investment Bank, boosting investment in the sector,” Macdonald said.
“We do however hope that this is the start of a new approach to UK government strategy for the oil and gas sector that takes a longer term view – and that industry and government work together to identify what else needs to be done to deal with short term challenges and the longer term